By Judith McGuire*
Executive Vice President, Product Management
As the economy slowly emerges from the depths of the 2008 recession, consumers are incorporating lessons learned from several difficult years into behavioral choices going forward. For example, the recently published 2012 Debit Issuer Study, commissioned by PULSE, found that debit continued to grow in 2011, showing an increase in both the average number of transactions per card and in average debit spend per card over 2010.
And, earlier this year, Auriemma Consulting Group’s syndicated study of U.S. debit cardholders, The Payments Report, showed that consumers between the ages of 18 and 34 (millennials) strongly prefer debit. That same research reported that all consumer groups, in terms of age and income, are choosing debit more frequently than just a year ago. Debit is the preferred payment choice for many because it gives consumers better control over their finances.
How then can financial institutions capitalize on consumers’ preference for debit to grow revenue, improve customer satisfaction and reduce attrition? Consider the many initiatives that financial institutions can take to increase debit transactions and dollar volume while simultaneously strengthening customer loyalty by helping customers meet their financial obligations:
Encourage Responsible Spending
- Communicate through statement stuffers, online, email, text and app messages to reinforce the benefits of using debit to live within one’s budget and plan for unexpected expenses and larger purchases.
- Promote the prudent use of debit in place of cash to better control impulse purchases and maintain transaction records in one easily accessible and secure location.
- Advise customers on how they can avoid interest charges by paying with a debit card.
Reward Loyal Behavior with Relationship or Product Incentives
According to the findings in the Debit Issuer Study, 30 percent of regulated issuers have stopped their rewards programs. Given that rewards have historically been popular with consumers, we recommend thinking about rewards with an eye toward retention and in the context of the entire customer relationship.
- Offer a premium debit product as a retention tool for frequent transactors or high dollar volume debit transaction customers and include customer incentives which drive business growth rather than “rewards” which take time to earn and energy to track.
- Provide exclusive customer service contact via a special phone number and email address.
- Offer ATM or account-fee waivers for a specific number of debit transactions within a specified time period.
- Enable access to special considerations, such as lower overlimit fees, as a reward for a customer attaining an identified debit dollar threshold or direct deposit.
- Nurture your millennial customer relationships, as these younger account holders are the most active debit users.
- Conduct research to determine which services appeal to them in order of priority.
- Help them manage their financial lives so that non-traditional financial services do not displace their debit relationship. For example, you can offer a pay day loan product for customers with a recurring direct deposit. This is popular among younger consumers who may need a short-term loan until their next pay day. When the direct deposit is credited, the loan is paid back automatically.
- Explore merchant loyalty programs to increase debit transactions.
- Identify and approach specific local or national merchants that have a congruous image and customer base, either for the majority or the institution’s most profitable debit customers, to develop a mutually beneficial compelling rewards/perks program.
Introduce Additional Ways for Debit to Generate Interchange Revenue
Encourage customers to use their debit cards and PIN online for Internet purchases and payments. Internet PIN debit provides a safe, secure way to enter PINs online with participating e-tailers. This added option appeals to consumers concerned about entering debit card information online.
PINless bill pay also provides increased convenience for debit cardholders and improved collections for companies. Consumers can often receive credit for their bill payment much more quickly than ACH payments. This secure process is a win-win-win, considering the increase in debit interchange revenue.
How do you decide what to do first? Some steps to consider in deciding which of the above actions makes the most sense for your financial institution include:
- Conduct a feasibility analysis to understand which of these strategies and tactics might produce the most revenue or be easiest or quickest to implement without creating unanticipated consequences.
- Pilot test your initiatives with a limited segment of your customers to further refine and prepare for a flawless launch.
- Conduct market research to help size and prioritize opportunities. Market analysis should also be used to refine product designs.
- Create a competitive review of the products, services, fees and incentives that rivals are offering.
What’s to gain? Setting a revenue goal and targeting relationships and transactions following these analyses are sure to yield bottom-line, efficiency and retention benefits.
What’s to lose? Competitors looking at the same landscape also are likely determining which tactics are most desirable to capture the most profitable customer relationships.
*Judith McGuire serves as Executive Vice President of Product Management for PULSE, a Discover Financial Services company and operator of the PULSE® electronic funds transfer network, headquartered in Houston, Texas.